Boeing talks fall apart; S.C. likely to get 787 line

Originally published October 28, 2009 at 12:01 am

Updated October 28, 2009 at 2:38 pm

North Charleston, S.C., is already the site of side-by-side factories that produce two-thirds of the fuselage for Boeing’s 787 Dreamliner. The two plants are adjacent to Charleston International Airport.

Discussions between the Machinists union and Boeing over the second 787 production line for Everett are effectively dead, according to a person familiar with the negotiations. Boeing now appears close to choosing Charleston, S.C., as the location of the second line. The person close to the negotiations said an announcement could come within days.

“The union wants to continue talking,” said this source, who is not aligned with the union. “The Boeing Co. does not want to talk any further.

“The company is fairly close to being done, if not done already,” the person said.

Boeing spokespeople could not be reached for comment late Tuesday.

Last week, company negotiators asked for a “best and final offer” from the International Association of Machinists (IAM). The company wasn’t satisfied with the union proposal and talks stalled.

U.S. Sen. Patty Murray, D-Wash., intervened over the weekend, talking to each side separately and acting as a go-between, her office confirmed. Gov. Chris Gregoire and Aaron Reardon, Snohomish County executive, also made calls to both sides and tried to encourage compromise.

That led to further direct talks Saturday between Rich Michalski, the IAM’s general vice president, and Tim Keating, Boeing’s senior vice president for government operations.

In those talks, Michalski assured Keating the union was willing to give more than it previously had offered, and the union thought a deal was attainable, said the person familiar with the negotiations.

It’s not known exactly how far the union had moved in its offer to the company since last week, when it sought an extended series of predetermined wage increases as part of a no-strike agreement.

The Boeing board met Monday and decided to postpone a decision by at least a few days.

Meanwhile, in a special session of the South Carolina Legislature Tuesday, the Senate Finance Committee approved a lavish incentive package for Boeing if it chooses Charleston.

The proposed legislation, which does not mention Boeing by name, includes $170 million in upfront grants for startup costs, plus multiple tax breaks that would be worth tens of millions of dollars more.

The proposed legislation assumes the company will invest $750 million and create 3,800 new jobs in South Carolina within seven years — if it doesn’t create that many jobs, it doesn’t get any of the money.

That surprisingly large number suggests that if Charleston does win the second 787 line, Boeing will expand there quickly and add substantial work beyond the 787.

“That provision would not have been made up,” Otis Rawl, chief executive of the South Carolina Chamber of Commerce, said in an interview Tuesday. “That came from the entity that’s looking at the state. It’s the number they anticipate creating.”

Rawl said the incentives “go beyond what’s normally offered.”

“We hope that we create an environment where they want to be here for more than what we’ve talked about,” Rawl said.

“We’re doing everything we can to be in the game,” he said. “We’re putting $170 million on the table.”

That’s just the upfront money for infrastructure, buildings, equipment and training.

Other significant tax breaks mean Boeing won’t have to pay sales tax on computer equipment, on building construction materials or on the aviation fuel it uses in test flights and aircraft delivery flights.

Under another provision, it will have virtually no corporate income-tax liability in the state for five years.

One advantage South Carolina has over Washington state in designing this package is that it is bidding purely for additional work that otherwise wouldn’t exist, while Washington state is arguably trying to preserve existing jobs into the future.

Since a 787 line in Charleston would increase state revenue from payroll and sales taxes on the new work force and from an expected boost to the economy, Rawl said that over time it “will more than offset” the money South Carolina uses to woo Boeing.

Rawl said he expects the Legislature to pass the Finance Committee measure in special session today.

South Carolina officials are immensely secretive about economic-development-incentive negotiations.

Even now, with an incentive bill including a sales-tax break on jet fuel for test flights just a day shy of passage, Rawl did not name Boeing but referred only to “the entity that we both know we are talking about.”

“It’ll be off to the races tomorrow, pretty much. Everything will be done,” Rawl said.

“This economic-development package, along with the decertification of the union in North Charleston, gives the entity all the indicators they need, I hope.”

The person close to the talks between the union and the company said hope is fading fast for Washington state.